Health insurance is one of the most sought-after benefits that employees look for when considering an organization’s compensation package. A recent poll published by the U.S. Chamber of Commerce revealed that 96% of employees view their health insurance as “extremely important” (83%) or “very important” (13%).
While employee-sponsored insurance premiums have continued to outpace wage growth and risen above the inflation rate, employers are expected to encounter the largest health insurance cost increase in decades. This increase is anticipated to cause significant financial stress on employers and employees nationwide.
Experiencing the Highest Health Insurance Cost Increase in Recent Decades
Major benefits firms Willis Tower Watson (WTW) and Mercer recently provided new survey results to The Wall Street Journal that showed the steep climbing of health insurance costs for businesses and their workers.
The survey revealed that the costs for employer health insurance coverage were expected to surge around 6.5% in 2024. WTW projects that this increase will be the largest in over a decade.
Such a major surge in the healthcare industry could potentially add to the price of employer-sponsored health plans.
According to a 2022 survey published by the Kaiser Family Foundation, annual family premiums for employer-sponsored health plans already cost approximately $22,463, with an employee contribution of about $6,106.
Employer-Sponsored Health Plans Expecting to Rise
With the cost of employer-sponsored health insurance expected to rise in the upcoming year, many employers are concerned about its effects on their budgets and the finances of their employees’ families.
The WTW and Mercer survey reported that employer plans already average over $14,600 a year per employee, and a large increase could put even more financial stress on employers and employees who rely on these benefits.
With disrupting cost increases on the horizon, organizations must work to reshape their current strategies and seize every opportunity to cut costs in certain areas while making investments where it counts.
How American Businesses are Coping with Health Insurance Increases
With health insurance rising, businesses of all sizes struggle to manage the impact on their bottom lines. Many organizations seek ways to offset these rising healthcare costs by implementing creativity into financial strategies.
A common strategy that many businesses have adopted is a short-term tactic that involves shifting more of the financial burden to employees. Introducing higher health insurance premiums or employee cost-sharing helps reduce costs for employers. Still, it is not usually well received among workers.
There are several options for employee cost-sharing, such as increasing employee costs for using non-network providers, enforcing higher deductibles and out-of-pocket minimums, or increasing employee costs for using brand-name prescription drugs instead of their generic counterparts.
The Unexpected Consequences of Recent Health Insurance Cost Hikes
Unreasonable health insurance increases have led to several unexpected consequences. Among the most affected by these changes are employees, who have a 1.6% less chance of being employed with every 10% health insurance increase, according to the National Bureau of Economic Research (NBER).
Low-wage workers are especially vulnerable to increases in health insurance as their tight budget limits how much additional funding can be allocated toward rising healthcare premiums.
Some of the most substantial unexpected consequences of recent health insurance cost hikes include:
Heavier Strain on Hospital Costs
There are many contributors to rising health insurance costs across the U.S., from the aging population and chronic disease prevalence to rising drug prices and administrative costs. However, an unexpected contributor to faster health insurance cost growth is higher labor costs in hospitals, in addition to an increased demand for new and costly obesity and diabetes drugs.
According to the U.S. Centers for Medicare and Medicaid Services (CMS), U.S. healthcare spending can be divided into several main categories, with hospital care topping the list. Hospital care represents 31% of healthcare spending, followed by physician services at 20%, prescription drugs at 10%, and other personal healthcare costs at 5%.
More Expensive Drug Treatments
Rising prescription drug costs are also an unwanted consequence of rising health insurance costs. A report published by the Assistant Secretary for Planning and Evaluation (ASPE) found that 1,216 drugs saw a faster-than-inflation increase between 2021 and 2022, resulting in an average surge of 31.6% for that group of drugs.
There has long been controversy regarding the steep prices of drug treatments, with many calling the cost of prescription drugs unreasonable. Affordability has become even more difficult for individuals taking multiple prescription medications at once, causing some patients to skip doses or forgo their medications altogether to save money.
Trends to Watch for in 2024 Open Enrollment
Changes are anticipated during the 2024 open enrollment period as healthcare cost increases put a financial burden on both employers and employees.
While benefit plans are never static, the upcoming jump in health insurance costs in the new year will require extensive pre-planning by human resources (HR) departments to ensure that employees are aware of cost increases and that organizations are prepared to take on an increased share of healthcare expenses.
Some of the biggest health insurance cost trends to watch out for in 2024 open enrollment include:
Workers Paying More Out of Pocket
With premiums rising at an unprecedented rate, many employees face greater cost-sharing, leaving many underinsured or uninsured. With the 2024 open enrollment period arriving soon, many workers will begin learning about their workplace health insurance coverage options.
Employees will likely be forced to pay more out of their paychecks to cover these increases in healthcare costs. According to findings from the Commonwealth Fund Biennial Health Insurance Survey, 46% of respondents said that they have delayed or skipped care due to cost, and 42% reported that they have experienced problems paying current medical bills or paying off past medical debt.
The survey also showed that out-of-pocket costs for employees over the past 12 months, excluding premiums, equaled 10% or more of a worker’s household income.
Employers are Also Expected to Pay More
Although some employers are shifting the cost of rising healthcare costs to employees, others are helping employees offset these increases by limiting their out-of-pocket costs.
Many employers are expected to take on the bulk of this health insurance increase in the next year, partially due to ongoing labor shortages in many sectors that have forced employers to take additional steps to attract and retain talent.
To help reduce their share of the costs, many employers will be implementing new strategies, such as:
- Encouraging workers 65 and older to enroll in Medicare
- Increasing deductibles
- Choosing managed care
- Limiting coverage for employees
- Offering wellness programs
- Switching to self-insurance
- Considering alternative plan designs, such as a high-deductible plan combined with a health savings account (HSA).
Navigate the Challenges of Health Insurance Cost Increase with Consulting from New City
With health insurance premiums expected to surge in 2024, employers must start to prepare now to better control the financial burden this increase will have on their business and workforce. New City Insurance has helped countless organizations restructure their employee benefits to overcome the challenges of health insurance cost increases.
To learn more or to schedule a consultation with a New City consultant, contact us today at 888.210.2765.